Retailers Not Selling Real Growth

The buyers are demanding growth, but not just any growth. They want real growth, top-line growth. They aren't buying the manufactured earnings-per-share numbers from the companies that have low top-line numbers. They want Facebook (FB) and Twitter (TWTR) and Google (GOOG), which have no fences to their growth. Heck, this market is so discerning, it is taking Amazon.com (AMZN) to the woodshed because its growth might be ever so slightly deteriorating.

What else do the buyers want? They prefer industrials to the consumer stocks, that's for certain. With the breakdown of the retail ETF, we are seeing real question marks, major ones, about the whole notion of shopping. Sure, there are a couple of bright spots: Costco (COST), Macy's (M) and Starbucks (SBUX) were able to put up 5% same-store growth, and Chipotle Mexican Grill (CMG) put up a beast of a number, a plus 9, made up with traffic, not price.

But for the most part, retail, including Wal-Mart (WMT) today, has been a disaster. We keep getting divided opinions about why. Starbucks CEO Howard Schultz famously declared that there is a secular sea change against the mall. Customers are window-shopping the mall and seeing if they can get it for less elsewhere. Amazon.com certainly did nothing to dissuade me from that view, and neither did Google (GOOG), which on its triumphant call directly cited the process of consumers Googling while shopping.

There's no doubt that the weather has been a huge bear. I keep thinking back to what Farooq Kathwari, the chief executive officer of Ethan Allen (ETH), told me, which is that while retail was slow for him through much of the country, it was very strong in California and Florida, where the weather was just fine, thank you.

And then there's the federal government's contribution to the retail morass. While I am no fan of Wal-Mart's execution, its mention of the weather and the cutback in food stamps resonates. Surely the government shutdown didn't help. It looks to me that the federal government directly impeded business and employment with its closing, and the group is bearing the brunt of it. Let's not forget that the U.S. remains dramatically overstored, and this moment, oddly, after the Great Recession, is when Sears (SHLD) and J.C. Penney (JCP) seem most in doubt. Do we really need them, other than as a source of employment? I think we all know the answer.

Retail is a dark hole, and I don't want to crawl into it.

You would think that the hot money would gravitate to the consumer packaged goods with their higher yields, but I think people are worried about their emerging-market growth stories, now that emerging markets are in free fall. The yields aren't great enough yet, unlike the real estate investment trusts, which bottomed when rates topped out and are now coming back furiously.

All in all, the fact that someone's willing to pay up $66 for Chipotle and taking a pass on McDonald's (MCD) pretty much says it all for every theme out there, everything from natural and organic, one of my coveted touchstones from Get Rich Carefully, to the desire for pure growth over growth purchased by purchasing stock and cutting expenses, even if it means sniffing your nose at a 3.5% yield.

Don't know how long the bias will last, but it's in full force right now and certainly not going away anytime soon.